Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. L-28134 June 30, 1971
SOCIAL SECURITY SYSTEM, petitioner,
vs.
THE COURT OF APPEALS and THE PHILIPPINE GUARDS PROTECTION
UNIT, respondents.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Pacifico
P. de Castro, Solicitor Antonio M. Martinez, Attorney Luz M. Villamor and Attorney
Rafael M. Buñag for petitioner.
Alejandro P. Capitulo for private respondent.

VILLAMOR, J.:
This is an appeal by the Social Security System from the judgment of the Court of
Appeals declaring null and void the membership of private cases Philippine Guards
Protection Unit in the Social Security System from August 1, 1958 to June 17, 1960,
pursuant to Republic Act No. 1161 (The Social security Act of 1954), as amended by
Republic Act No. 1792 and accordingly excluding it from compulsory coverage
during that period; declaring the said private cases a member of the Social Security
System only as of June 18, 1960, pursuant Republic Act No. 2658, which farther
amended the said Section 9; and ordering the Social Security System to refund to
the said cases the contributions remitted by the latter to the System corresponding
to the first period mentioned.
The following proceedings gave rise to the present appeal:
On February 18, 1960, as a result of a letter sent by the Social Security System to
the Philippine Guards Protection Unit threatening it with court action if it did not
continue to remit its contributions to the System, the said protection unit, owned
and operated by Clemente V. Eslao filed with the Social Security Commission a
petition for exclusion from coverage under the System and for a refund its
remittances for September and October 1958. The reason given by the unit is that it
is not subject to compulsory coverage under the Social Security Act of 1954, as
amended by Republic Act No. 1792, because it is not the employer, but merely the
agent of the thirty-nine security guards or watchmen whose names appear in its
membership list, for, actually, it has only one employee, namely, the clerk-secretary
of the office. Under Section 9 of the Social Security Act of 1954, as amended by
Republic Act No. 1792, which work effect on June 21, 1957, "the Commission may
not compel any employer to become a member of the System unless he shall have
been in operation for at least two years and has, at the time of admission, if
admitted for membership during the first year of the System's operation, at least
fifty employees and if admitted for membership in the following year of operation

We have noticed that although under the judgment of the Court of Appeals private respondent's membership in the System as of June 18. 20.. but that the security guards or watchmen in its roster should not — as under Republic Act No.n. The owner of the agency furnishes the firearms and ammunitions. the owner would look for persons or establishments that need the service of a guard or guards. pp. pp. Hence. April 4. he remains with the agency as an "extra guard" and he is utilized by the agency as a substitute for those guards going on vacation or for those who are sick or otherwise absent (t... 2658. the decision under review can be interpretend to mean that private cases became a member of the system as of June 18. 1960. 1792 that the employer should have at least six employees for purposes of compulsory coverage. 1792. the owner pays the salary of the guard. p.. to wit: . The owner may refuse to accommodate an applicant if he so desires (t.s. which eliminated among others. 1960. but the watchmen buy their own uniforms (t.n.and thereafter. retaining a part thereof for himself as his "commission" as long as the watchman is assigned to guard the premises of a client (t. the Social Security Commission.s. 1960. on April 12. a contract is entered into between the owner of the agency and the client. under Republic Act No. ." After the issues had been joined and the case heard. either orally or in writing (t.. When a person or establishment requiring the service of a guard is found by the owner.n. has been expressly declared and recognized pursuant to Section 9 of the Social Security Act of 1954. 1792 — be considered private respondent's employees. 1960. but the same was denied in an order of May 8. pp. April 28. To dispel any doubt and obviate further suits on the matter. April 4. 1961. 1960. 17) The owner collects from the client the fee for the service and from the amount received. As it now stands. we hereby make it clear that the issue for resolution is whether or not for purposes of social security coverage.. are succinctly stated in the basic resolution of the Social Security Commission. 2658. April 4.. which reversed the resolution and order of the Commission in a decision promulgated on July 24. If no such persons or establishments are found after the applicant has secured a license. 21). p. because it had at least one employee.n. when Republic Act No. 2658 took effect. the security guards or watchmen in question should be considered private respondent's employee's not only under Republic Act No. The pertinent facts concerning the mechanics of the tripartite relationship among the Philippine Guards Protection Unit. the requirement under Republic Act. 1960. and accordingly declaring the latter subject to compulsory coverage. likewise not be considered employees of the said respondent. as amended by Republic Act No. the owner tells him to secure a license as a special watchman and in the meantime. 1960.s.n. which were substantially adopted by the Court of Appeals. an appeal was interposed by the Philippine Guards Portion Unit with the Court of Appeals. 11-12). 1961. it is not clear from the appealed decision if it is also the sense and intent of that court that the security guards or watchmen in the roster of private respondent should. 1967. but also under Republic Act No. 18). at least six employees . 6-7). the dispositive portion whereof is summarized in the opening sentence of this Opinion. No.. 2658.s...s. April 4. handed down a resolution finding the Philippine Guards Protection Unit the employer of the security guards or watchmen. [W]henever a person approaches the owner of the agencies for employment. its clients and the security guards or watchmen. A motion to reconsider was filed.

sickness and death it would not be improper to adopt a uniform interpretation. definitions of terms. (e) The Supreme Court has in a number of cases. for purposes of social security coverage. because without their asking for the latter's services.If a client is dissatisfied with the service of a guard.n. April 4. or activity of any kind and uses the services of another person who is under his orders as regards the employment. except the Government and any of its political subdivisions. branches or instrumentalities.s. and the conclusion arrived at. — Any person. pp. where there is an employeremployee relationship. subject to its right to deduct its commission for securing work for them. by cases Court of Appeals. The Social Security Act of 1954." While the companies or units hand over the watchmen's compensation to private respondent. domestic or foreign. which defines an employer as one who "uses the services of another person who is under his orders as regards the employment. (d) Employee. the two laws being kindred legislations aimed at providing protection to the employees against the hazards of disability. . 1960. — Any person who performs services for an "employer" in which either or both mental and physical efforts are used and who receives compensation for such services." and to Section 8(d). which in turn pays the salaries of the watchmen after deducting a commission. the agency may change the guard if the client so requests. business. in behalf of and in trust for the watchmen. The reasons of the Court of Appeals for concluding that there is no employeremployee relationship between private cases and the security guards and watchmen may be summarized as follows: (a) it is to the employing units or companies that the watchmen render their services. among which are the following: (c) Employer. contains. (d) The employing company or unit has the right to ask for a change or replacement or even to terminate its agreement with private respondent. it is the former that are the employers of the watchmen. hence. and while those cases involve the interpretation of the Workers Compensation Act and not the Social Security Act. Several considerations constrain us to differ with the views expressed above. watching and protecting the interests of the companies or units. in its Section 8. or it may impose a fine on the guard as a disciplinary measure (t. 17-18). it follows that in relation to their duties of guarding. industry. undertaking. the watchmen receive no orders from private cases but from the said companies or units. natural or juridical. pursuant to Section 8 (c) of the Act. who carries on in the Philippines any trade. which defines an employee as one "who performs services for an employer in which either or both mental and physical efforts are used and who receives compensation for such services where there is an employer-employee relation. the watchmen concerned cannot be employed in the said companies or units. including corporations owned or controlled by the Government. (b) Since no service is rendered by the watchmen to private respondent. whatever right or interest private cases has in the said salaries is limited to receiving the same for.. as when a guard is always late. recognized special watchmen as employees of the companies to which they are assigned. (c) It is the companies or units that hire or engage the watchmen.

and the salaries it pays to the guards or watchmen and to its clerk-secretary. does not in the least detract from the fact that private respondents is the said employer of the said watchman. so much so that if for one reason or another. but has to notify private respondents. say. such giving out of instructions inevitably spring from the clients right predicated on the contract for services entered into by it with private respondents. Who the clients will be under what terms and conditions the services will be rendered." Considering our view that the guards or watchmen included in its roster are private respondent's employees. That in the course of a watchman's assignment the client conceivably issues instruction to him. which reads: . are expenses incurred in the operation of the business. cases would not be in business. and the latter employees of said respondent. thus enabling that respondents to fulfill its contractual obligation. firearms and ammunition. the properties and interests of private respondents clients. the client companies may not be deemed employers of said guards or watchmen. All the fees received by private respondent from its clients constitute. Cases Philippine Guards Protection unit must be considered an employer of the thirty-nine security guards or watchmen. but not by private respondents. light. Consequently. that private respondent is bona fide independent contractor. and considering. such fee is arrived at independently of the salary to which the guard or watchman is entitled under his arrangements with private respondent. On the other hand the client companies have no hand in selecting who among the guards or watchmen shall be assigned to them. In the matter of compensation. The net income or profit arrived at after deducting these expenses from the gross income. the guardsman or watchman. guard and protect. its ex for. office rent. the client is dissatisfied with a services of a particular guard the client cannot himself terminate the services of a particular guard. In defining an employee. there can be question to all the guards or watchmen receive compensation from private respondents and not from private companies or establishments whose premises they are guarding. are matters determined not by the guards or the watchmen. not between the client. It uses the services of other persons — the guards or watchmen — to carry on its business. further. It is private respondents that issues assignment orders and instruction and exercise control and supervision over the guard or watchmen. its gross income.Tested against the criteria in Section 8 (c) and (d) of the Act. Private respondent carries on a business — watchmen's service — from which it derives its income in the form of what it terms "commission". pursuant to Section 8(j) (10). the term "commission" as applied to the difference between the fee received from a client and the salary paid to a guard or watchman is a misnomer and its use by private cases can alter the relationship of employer and employee between it and the guards or watchmen. Without them. which. which either substitutes with another or metes out to him disciplinary measures. Collolarily. sanction 8(d) employs the phrase "who receives compensation for such services. the privity of contract between the client and private respondents. for in contemplation such instruction carry no more weight than mere request. The fee contracted to be paid by the client is admittedly not equal to the salary of a guard or a watchman. The guards or watchmen render their services to private respondent by allowing themselves to be assigned by said respondent. furnishes them arms and ammunition. which consists solely in the letting out of watchmen's services for a fee. water and telephone services. licenses. where is an employer-employee relationship.

involves an interpretation of the Social Security Act of 1954.. ." Maligaya Ship Watchmen Agency. The watchmen agencies never undertook for a specified sum the guarding of the vessels and their cargo. regardless of whether the disputants stand in the proximate relation of employer and employee. United States Lines.. 920. Jur.. In the payment by the client to private respondents of compensation. From our earlier discussion it can be seen that all the four elements enumerated above are present to make out a relationship of employer and employee between private cases and its thirty-nine security guards or watchmen. The guarding of each ship and its cargo was never the subject of a contract between one and the other. 875 (The Industrial Peace Act).. et al. 896. among others... of the following considerations: . Associated Watchmen And Security Union (PTWO). and applied Section 2 of Republic Act No. 411-412... v. on the other.. by the way. and. we said: In determining the existence of employer-employee relationship. the issue was whether a sum of money in the hands of protective agency representing "salaries of guards employed by the different companies affiliated with the detective and protective agency" could be garnished for the payment of back wages judicially adjudicated in favor of . 408. the following elements are generally considered. et al. Associated Watchmen and Social Security Union (PTWO). the guarding of the companies' premises and properties is the subject of the contracts. et al. for here there is admittedly a contract entered into.. Al-Lagadan and Pica. [T]here never were contracts between the shipping lines and their agencies. were never paid therefor a lump sum without reference to the number of watchmen performing the duties of guarding and the wages that each should receive for his work.. .. Dacara. (3) the power of dismissal and (4) the power to control the employee's conduct — although the latter is the most important element (35 AM. namely: (1) the selection and engagement of the employee. there is reference to the number of watchmen but none to the wages each shall receive for his work. 99 Phil. involved the determination of who among the members of watchmen's agencies should be allowed to take part in certification elections. other orally or in writing. v. precisely.. and the watchmen agencies-petitioners. The fact situation in the case is quite different from that in the present.. none of which. are not applicable.. 101 Phil. 106 Phil. In Viana v. The cases cited by respondent Court of Appeals. in view. et al. In Nicolas. on the one hand. involved a determination of whether a labor dispute existed between the watchmen and the companies to which they were assigned by the watchmen's agencies. et al. between private respondent and its client companies.Employees of bona fide independent contractors shall not be deemed employees of the employer engaging the service of said contractors. 103 Phil. tenure .. which defined a labor dispute as "any controversy concerning terms. and we there held that the watchmen who were actually guarding the ships and their cargo should be considered laborers or employees of the shipping lines for purposes of the elections. 445). 934. (2) the payment of wages. v.

other guards affiliated with the same protective agency. different clients have to deduct premiums from different watchmen at different times and remit them to the System together with the clients' own share of the premiums. that since the money in question secured by the sheriff represented wages due the guards "from companies that have employed their services." There are practical considerations why private respondents Philippine Guards Protection Unit. Social Security Act of 1954). Private respondents membership in the Social Security System from August 1. under Section 39 of the Workmen's Compensation Act the term "employer" includes "the owner or lessee of a factory or establishment or place of work or any other person who is virtually the owner or manager of the business carried on in the establishment or place of work but who. Cabagnot Vda. the employer of the 39 guards or watchmen listed in its roster (a) A watchman is not permanently assigned to a client." the same could not be attached or garnished for the debts of the protective agency to the other guards. while others not." the Compañia Maritima. considering that all the watchmen are on the payroll and under the supervision of only one entity. for purposes of social security coverage. is not the direct employer of laborers employed there. or for any other reason. the latter do not determine how much salary is to be plaid to the watchmen. that the said amount really and actually represents such wages. we held that for purposes of workmen's compensation benefits. the judgment appealed from is reversed and set aside. Costs against private respondent. that in contradistinction with Section 8(j) (10) of the Social Security Act of 1954 (quoted above). for the reason that there is an independent contractor in the same. (b) Under the arrangements between private respondents and its the clients. PREMISES CONSIDERED. Again. A fortiori. (d) If private respondent's clients are considered the watchmen's employees. have 39 different employers. 873. It will be borne in mind.. there is no similarity between that case and the present. can a client deduct the premiums due from a watchman? And how can it determine the amount of the watchman's premium as well as its own? (c) Service performed by one person for another is not considered an employment if the same is "purely casual and not for the purpose of occupation or business of the employer" (Section 8[j][3]. . all the 39 watchmen may be covered sometimes. including its security guards or watchmen. depending on whether or not he happens to be assigned to a client which carries on a trade business. it may happen that the 39 different watchmen. The clients merely pay to private respondent the fee stipulated in their contracts. but there "it was found by the (Workmen's Compensation) Commission that the salary of the deceased was paid directly from the funds of petitioner. To pursue the matter further. In Compañia Maritima v. which absurd. Consequently. de Hio. for here the security guards or watchmen receive their salaries not from the companies whose premises and properties they guard. some may be covered by the System's plan. industry. 1958 up to the present is declared valid and effective. but from private respondent itself. How. undertaking or activity of any kind (Section 8[c]. is hereby declared compulsory. Under private respondent's hypothesis. and not at other times. et al. then. and private respondent is directed to pay or remit to petitioner all back premiums due. for one reason or another he may be pulled out of a particular assignment and detailed to another client. of private respondent's 39 watchmen. 107 Phil. supra). a watchman may at times be considered an employee and at other times not. a watchman recruited by a protective agency to guard the premises of a company should be considered an employee of said company should be considered an employee of said company. moreover. would be considered. Coverage in the System upon all its employees falling within the required age level. We there held. citing Maligaya Ship Watchmen Agency. and not its clients.